You're getting the engineers all hot, you know . . . .Trading options ramps up the the complexity of a "normal" investment by a huge order of magnitude and has substantial risks which are not alway obvious. The people selling option trading services gloss over these aspects and if you are good enough to make money trading options on your own you'd likely be working for Goldman Sachs or another big investment bank. Our financial advisor is ranked by Barron's as one of the top 250 in the country and she advises against options. When I was younger I thought I was smart enough to trade a few options and I lost money, fast.
If this formula makes sense to you, go for it, lol.
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Most treat it separately. There is no rquirement for the trade so if you want you can trade all you want without needing large sums of cash to "own" the rights. Margin is just a loan from the Fin. Institute. That is a whole nother risk you take and that is when you better be very smart and careful. because that has caused a lot of people to go upside down and lose out of trades.I can't remember but are you required to have a margin account to trade options?
Warrants are just like call Options except they are issued by the company and when the warrant is executed by the person awarded the warrant, the stock gets diluted since new shares are in the market. It’s an OTC thing and not really an exchange thing. Think of it as stock options awarded to an employee that has an expiration date On it.Anyone know anything about "warrants" as they relate to investing?
Makes sense. So, if I'm understanding them, if you buy 1 Warrant for Company XYZ for $30 with the option to execute for $11, then you're in it $41, right? If the stock is selling at $70 now, what's the difference between executing now and getting your $70 stock for $41 versus waiting for the stock to hit $100 and executing? Either way, you're still getting it for $41. The advantage is if it drop below $41, then you only lost $30 instead of $41 (or $70), right?Warrants are just like call Options except they are issued by the company and when the warrant is executed by the person awarded the warrant, the stock gets diluted since new shares are in the market. It’s an OTC thing and not really an exchange thing. Think of it as stock options awarded to an employee that has an expiration date On it.
Probably a better strategy for most retail traders. Options trading only good thing is to add volitilty but even then I'm sure too many people get in over their heads only looking at the upsides compared to ridiculous amount of risk.I would honestly rather take the money and bet on sports, I don't seeing it being much different
I don’t know scat about it but do know I won my Econ 101 at college by going 100% in on Playboy. I forget the NYSE sign but I was about 40% up that year, in my virtual classroom money.What do I need to know about option trading? My kid has a friend who's apparently into it and he wants to try it. Everything I know says it's very high risk. Where can I educate myself?
If you buy options you can only lose what you invest. If you short options then you can have a problem.So, is it safe to say I can lose more than is in my account?
To clarify this situation, you would buy to open Call 125 for $300 and if the share price reached $150 at the expiration you could sell to close at ~$25 netting yourself ~$2200. Now let's say it had reached that share price and you still had a month until expiration, there would still be some time value in the price of the option and you may be able to sell it for $25.50 or $26 depending on volatility. I have a book somewhere that was very good when I was learning about options so when I find the title I will let you know.So, let me see if I get this right. It's entirely possible that I watched that entire 1 hour video and still don't understand it.
If I buy a call option for $3 with a strike price of $125. That means I paying $300 up front for the option to buy $12,500 worth of shares before expiration. If the share price reaches $150, then I want to buy it because I'll effectively make $25/share or $2500, right?
Assuming that's all accurate, what if I don't have $12500 in my account? Can I buy them and immediately sell them for $150/share so I simply get $2500?
So, my max loss in that scenario would be $300 with unlimited potential gains, right?
I’m a Wall Street engineer and I approve of this message. Many of the tricky, complicated, obsfucated financial products exist to enrich those already at the top. Margin and option trading can yield incredible rewards and come with indescribable risk. There’s a reason most Wall Street traders enjoy trading with other peoples money.You're getting the engineers all hot, you know . . . .
IIRC, that model got Scholes a Nobel Prize in Economics.
Options are a risky investment. High risk, high reward. The best long-term strategy, in my opinion, is an age/situation-appropriate asset allocation plus time.
I agree with most of what tahoebum is saying. The Boglehead strategy certainly works. The advisors we're working with combine a core of passively traded ETFs with targeted stock/active fund selection. We're beating the portfolio weighted average index - not by much - by doing this. When I was managing my own IRA, I was able to beat the weighted average index - not by much, but I beat it - with a different strategy. Once I picked an asset allocation, I picked actively traded funds with a record of outperforming their categories in up and down markets, with expense ratios below category averages. I signed on with an advisor last year for four main reasons: 1) it was a lot of work to keep up with monitoring the portfolio, and I wasn't keeping up; 2) I had multiple funds in so many asset classes that my portfolio was starting to look like a high-cost total market index fund; and 3) I'm close enough to retirement that I wanted expertise to prevent us from making any really big mistakes; and 4) if anything happened to me, I'd want my wife to be able to have the financial assets part of her life covered after making a phone call.
In many ways, managing one's assets is like building a golf swing:
Choice 4 delivers the best results for the most people. There are no guarantees, but it's the best bet. You have to make sure you have a suitable coach/advisor, you have to be committed to the process, and you have to have some raw material to work with.
- some do it on their own and do a great job
- some do it on their own and do a lousy job
- some try to get there with one quick score/one lesson
- some try to get there by sustained commitments to coaching and effort